Taxes Consolidation Act 1997 section 79B

Matching of foreign currency assets with certain foreign currency share capital

Section 79B allows a financial services company to match a foreign currency asset with redeemable share capital denominated in the same foreign currency, so that exchange gains and losses on both are taken into account together for tax purposes.

• Where a company makes a loan in a foreign currency and issues redeemable share capital in the same currency to hedge exchange rate risk, any gain or loss on the loan is taxable but the corresponding loss or gain on the share capital is normally ignored — creating a mismatch.
• The company may elect to match the foreign currency asset with the corresponding foreign currency liability (the redeemable share capital) by giving written notice to the inspector within three weeks of acquiring the asset.
• Once matched, any gain or loss — whether realised or unrealised — on the redeemable share capital is taken into account in computing the company's trading income for the relevant accounting period, achieving tax neutrality.
• If the company disposes of the matched asset without discharging the share capital liability at the same time, it is deemed to have discharged and re-incurred the liability at the date of disposal, so that the matching relief applies correctly.